Call and put options are the most basic forms of binary options. Every serious trader should know how to use them successfully. With brokers now offering call and put options with expiration times of as low as 30 or 60 seconds, call and put options can help you win a trade in a minute or less, thereby creating a huge winning potential for any trader well versed in using them.
In this article we will be discussing when to prefer a call or put option over a touch or boundary option. If you are looking for an article explaining the basics of call and put options, you can find it here. Some brokers list call options as “high options” and put options as “low options”. Please do not let these names confuse you. They mean the same thing.
Continue reading below the table…
Many traders find it easier to predict the market’s future direction than to choose the right asset to trade their prediction with. They are unsure whether to use a touch / no touch, a call / put option, or a boundary option.
Understandably, too many options to choose from can be confusing. Still, when you understand the distinct advantages of each option type, choosing becomes easy.
At first glance, call and put options and touch and no touch options seem to overlap. Both require you to predict the future price direction. Touch options, however, require you to predict the strength of the price movement. With call and put options, this is not necessary. If you predict rising prices by investing in a call option, you can win your trade if prices climb just one pip. Similarly to touch options, boundary options require you to predict the market’s volatility.
Call and put options, therefore, are especially suitable if you can predict the future price direction, but are unsure about how strong the movement will be. Also, you will be able to win a higher percentage of your trades by investing in a call or put option instead of a touch option.
On the other hand, the lower risk comes with a lower payout in case you win your trade. This means, a strategy based on call and put options is better suited for risk-averse traders, while traders willing to deal with more risk might find other option types more attractive.
Finally, the ability to trade call and put options with an expiration time of as small as 30 or 60 seconds makes them invaluable to some strategies
As we have established, call and put options are especially useful when you are unsure about the strength of the price movement or when you expect a small movement. There are a number of factors that indicate a smaller movement: First of all, there is the time frame. The smaller you choose the timeframe of your chart, the smaller the expected movement will be. Traders operating from a 5 minute chart or smaller will find call and put options are their only suitable instrument.
On the other hand, many trading strategies only allow you to predict the market’s direction but not the strength of the movement. Trading simple candlestick formations, for example, is hardly a good strategy to combine with a touch option. Call and put options are the perfect instruments to trade simple candlestick formations.
Weirdly enough call and put options are therefore the perfect trading instrument for two very different types of traders: Very risk-averse traders will enjoy the high percentage of winning trades call and put options can generate. On the other, highly profit-oriented traders with a high tolerance of risk will benefit from the immense number of trading opportunities 30 and 60 second options can generate.